This paper shows that government debt creates a so far neglected wealth effect that has sizable effects on business cycle fluctuations. We present a new channel through which governments can influence cyclical fluctuations generated by any type of shock and contribute to macroeconomic stability....

Blanchard develops four main arguments concerning the costs of public debt when safe interest rates are low.First, the current US situation in which safe interest rates are expected to remain below growth rates for a long time is more the historical norm than the exception. If the future is like...

Over the last few decades, real interest rates have trended downward in many countries. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors such as income inequality. In this paper we explore the claim that these trends may...

This paper finds that debt-financed fiscal multipliers vary depending on the location of the debt buyer. In a sample of 33 countries fiscal multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared to when they are financed by...

When government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. (2010), Lustig et al. (2013)) increases and features more positive (adverse)...

This paper finds that debt-financed government spending multipliers vary considerably depending on the location of the debt buyer. In a sample of 33 countries, we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors...

This paper finds that debt-financed fiscal multipliers vary depending on the location of the debt buyer. In a sample of 33 countries fiscal multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared to when they are financed by...

This study revisits and tests empirically the Portfolio Theory of Inflation (PTI), which analyzes how the effectiveness of macroeconomic policy in open and globally financially integrated economies is influenced by global investor decisions (Bossone, The portfolio theory of inflation and policy...

Fiscal fatigue may lead a country to stop adjusting when debt continues rising in spite of a prolonged fiscal adjustment. Once fiscal fatigue sets in, the country may stop adjusting, thus compromising debt sustainability. However, the absence of sufficient adjustment may be the consequence of...

Although the financial position of households is found to be key for individual consumption responses to fiscal shocks, little is known empirically if household financial conditions are relevant for the spending multiplier. I explore this hypothesis using a historical sample for the U.S., a...